March 12, 2007

Lessons from SGI

Remember Silicon Graphics? One of the icons of the computer industry, well known for its graphics workstations, for high end applications like video editing, movie making and 3D graphics. It was an industry leader in the 1980s and I used to feel over awed by its graphics abilities.

Last year, it filed for Chapter 11 and now it is being restructured as a provider of high performance server and storage solutions. Its decline provides many a lesson to many of the hardware vendors. Some of the lessons are:

It is good to be able to dominate a niche, but when the industry forces coalesce to eliminate the niche, it is time to change. SGI’s focus on high end systems, blinded it to the fact that PC based systems were catching up on performance, and reduced the size of its niche.

It could have retained its leadership in graphics based cards and successfully eliminted competition like NVIDIA and ATI, but remained smug. It was only a matter of time, that NVIDIA and ATI assumed leadership positions and relegated SGI to just a small niche vendor.

More importantly, it contined to sell direct without building a partner / channel eco system. In the computer industry, more so in the hardware sector, the network effect can only be ignored at the cost of disastrous effects.

Even today, there are several companies that seem not to understand the "SGI effect" and continue to focus on their technology / engineering prowess, often ignoring the changes that are occuring in the industry sector.

I always feel intrigued what causes this blinding effect amongst talented management people. Is it the hope that the industry changes that they see as just transient phenomenon that will just disappear, or the inability to institute gut wrenching changes? Is it that they fall in love with their niche that they cannot see the impact of the broader changes impacting their niche?